Friday, February 24, 2017

The Pope's Problem with Basic Economics

Pope Francis has a problem with basic economics. Specifically, it appears he understands not even the most rudimentary concepts of economics. I doubt he could draw a supply and demand curve.

But yet it appears he has opinions about "proper" salaries and worker "exploitation." His spoken opinions give away that he does not understand the economic basics.

In a homily on Thursday, he lashed out at businessmen who "don’t pay...employees proper salaries...[and] exploit people..." Some reports say that he called such businessmen "greedy."

And in a serious slap for a Pope, he also said, "If such a person is a Catholic, it is better to be an atheist.”

It is difficult to see how the Pope is doing anything here other than sowing discord among brothers.

The book of Exodus, something the Pope should be familiar, with says:

There are six things that the LORD strongly dislikes, seven that are an abomination to him: haughty eyes, a lying tongue, and hands that shed innocent blood, a heart that devises wicked plans, feet that make haste to run to evil, a false witness who breathes out lies, and one who sows discord among brothers.

I could argue a few of these apply to the Pope given his comments, but sowing discord is the most obvious.

When he attacks businessmen who offer prices and wages in the market, he is creating discord between businessmen and consumers and workers.

Is this justified discord? The economist Murray Rothbard has explained the nature of prices:

In fact, pricing on the market is not an act of will by sellers. Businessmen do not determine their selling prices on the basis of whether they feel greedy or 'responsible' that morning. The entire apparatus of economic theory, built up over centuries, is devoted to demonstrating a great truth: that prices are set only by the demand of purchasers (how much of a good or service purchasers will buy at any given price), and by the supply or stock of the good...

The general public, media pundits, politicians, and even some businessmen, seem to have a mechanistic, cost-plus model of 'just' pricing in their heads. It is all right, they concede, for each businessman to pay his costs of production and then add on some 'reasonable' markup; but any price beyond that is morally condemned as excessive 'greed.' But cost of production has no direct influence on price; prices are only determined by supply and demand.

The Nobel-winning economist F.A. Hayek has discussed the "true function of the price mechanism" as a signal for how economic actors should adjust their behavior:

The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or "normal" level.

The Pope seems to have no understanding of this important role played by prices or how they are determined on the market and so he lashes out creating the discord where none should emerge.

He is preaching in a manner that is music in the den of totalitarians and creating a great economic sin.

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

When it comes to economics, the Pope's views reflect the uninformed views of most of the masses. He is one among billions. Catholics and atheists should give him no special attention on this topic.

When I was a mechanical engineering undergrad in college, we used a neat program where you could look up real time pricing of various materials and use their properties for mechanical designs to take into account price vs. material properties.

As an example, if the price of a certain type of steel skyrockets, you could update your design using a cheaper type of steel but perhaps using a heavier gauge to take into account the lower strength properties. Or maybe switch to aluminum and then add extra supports for the lower strength. Or if copper goes up in price... etc. etc.

The free market is an amazing thing, and as you point out the Pope is doing a great disservice by spouting his ignorance. More than a disservice, it is downright dangerous.

Neither the Pope, political office holders, political activists, or central bankers ever tried to make a product for the marketplace balancing all the factors involved. Trump is about as close as it gets and he's still in a different ballpark playing a different sport.

It's also highly ironic that this Pope, who lives in the lap of extreme luxury supported by money which, if it's not actually extorted, is acquired using guilt trips and promises to use the wealth to help the poor, etc., still has the temerity to lecture others about "greed" and "exploitation". What a bozo.